AN
ACT Relating to a reserve account for tobacco product manufacturers not
participating in the master settlement agreement; adding a new chapter to Title
70 RCW; creating a new section; prescribing penalties; and declaring an
emergency.
BE IT
ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW
SECTION. Sec. 1.
FINDINGS AND PURPOSE. (a) Cigarette smoking
presents serious public health concerns to the State and to the citizens of the
State. The Surgeon General has determined that smoking causes lung cancer,
heart disease and other serious diseases, and that there are hundreds of
thousands of tobacco-related deaths in the United States each year. These
diseases most often do not appear until many years after the person in question
begins smoking.
(b)
Cigarette smoking also presents serious financial concerns for the State.
Under certain health-care programs, the State may have a legal obligation to
provide medical assistance to eligible persons for health conditions associated
with cigarette smoking, and those persons may have a legal entitlement to
receive such medical assistance.
(c)
Under these programs, the State pays millions of dollars each year to provide
medical assistance for these persons for health conditions associated with
cigarette smoking.
(d)
It is the policy of the State that financial burdens imposed on the State by
cigarette smoking be borne by tobacco product manufacturers rather than by the
State to the extent that such manufacturers either determine to enter into a
settlement with the State or are found culpable by the courts.
(e)
On November 23, 1998, leading United States tobacco product manufacturers
entered into a settlement agreement, entitled the "Master Settlement
Agreement," with the State. The Master Settlement Agreement obligates
these manufacturers, in return for a release of past, present and certain
future claims against them as described therein, to pay substantial sums to the
State (tied in part to their volume of sales); to fund a national foundation
devoted to the interests of public health; and to make substantial changes in
their advertising and marketing practices and corporate culture, with the
intention of reducing underage smoking.
(f)
It would be contrary to the policy of the State if tobacco product
manufacturers who determine not to enter into such a settlement could use a
resulting cost advantage to derive large, short-term profits in the years before
liability may arise without ensuring that the State will have an eventual
source of recovery from them if they are proven to have acted culpably. It is
thus in the interest of the State to require that such manufacturers establish
a reserve fund to guarantee a source of compensation and to prevent such
manufacturers from deriving large, short-term profits and then becoming
judgment-proof before liability may arise.
NEW
SECTION. Sec. 2.
DEFINITIONS. (a) "Adjusted for inflation" means increased in
accordance with the formula for inflation adjustment set forth in Exhibit C to
the Master Settlement Agreement.
(b)
"Affiliate" means a person who directly or indirectly owns or
controls, is owned or controlled by, or is under common ownership or control
with, another person. Solely for purposes of this definition, the terms
"owns," "is owned" and "ownership" mean ownership
of an equity interest, or the equivalent thereof, of ten percent or more, and
the term "person" means an individual, partnership, committee,
association, corporation or any other organization or group of persons.
(c)
"Allocable share" means Allocable Share as that term is defined in
the Master Settlement Agreement.
(d)
"Cigarette" means any product that contains nicotine, is intended to
be burned or heated under ordinary conditions of use, and consists of or
contains (1) any roll of tobacco wrapped in paper or in any substance not
containing tobacco; or (2) tobacco, in any form, that is functional in the
product, which, because of its appearance, the type of tobacco used in the
filler, or its packaging and labeling, is likely to be offered to, or purchased
by, consumers as a cigarette; or (3) any roll of tobacco wrapped in any
substance containing tobacco which, because of its appearance, the type of
tobacco used in the filler, or its packaging and labeling, is likely to be
offered to, or purchased by, consumers as a cigarette described in clause (1)
of this definition. The term "cigarette" includes
"roll-your-own" (i.e., any tobacco which, because of its appearance,
type, packaging, or labeling is suitable for use and likely to be offered to,
or purchased by, consumers as tobacco for making cigarettes). For purposes of
this definition of "cigarette," 0.09 ounces of
"roll-your-own" tobacco shall constitute one individual
"cigarette".
(e)
"Master Settlement Agreement" means the settlement agreement (and
related documents) entered into on November 23, 1998 by the State and leading
United States tobacco product manufacturers.
(f)
"Qualified escrow fund" means an escrow arrangement with a federally
or State chartered financial institution having no affiliation with any tobacco
product manufacturer and having assets of at least $1,000,000,000 where such
arrangement requires that such financial institution hold the escrowed funds'
principal for the benefit of releasing parties and prohibits the tobacco
product manufacturer placing the funds into escrow from using, accessing or
directing the use of the funds' principal except as consistent with section
3(b) of this Act.
(g)
"Released claims" means Released Claims as that term is defined in
the Master Settlement Agreement.
(h)
"Releasing parties" means Releasing Parties as that term is defined
in the Master Settlement Agreement.
(i)
"Tobacco Product Manufacturer" means an entity that after the date of
enactment of this Act directly (and not exclusively through any affiliate):
(1)
manufactures cigarettes anywhere that such manufacturer intends to be sold in
the United States, including cigarettes intended to be sold in the United
States through an importer (except where such importer is an original
participating manufacturer (as that term is defined in the Master Settlement
Agreement) that will be responsible for the payments under the Master
Settlement Agreement with respect to such cigarettes as a result of the
provisions of subsections II(mm) of the Master Settlement Agreement and that
pays the taxes specified in subsection II(z) of the Master Settlement
Agreement, and provided that the manufacturer of such cigarettes does not
market or advertise such cigarettes in the United States);
(2)
is the first purchaser anywhere for resale in the United States of cigarettes
manufactured anywhere that the manufacturer does not intend to be sold in the
United States; or
(3)
becomes a successor of an entity described in paragraph (1) or (2).
The
term "Tobacco Product Manufacturer" shall not include an affiliate of
a tobacco product manufacturer unless such affiliate itself falls within any of
(1)-(3) above.
(j)
"Units sold" means the number of individual cigarettes sold in the
State by the applicable tobacco product manufacturer (whether directly or
through a distributor, retailer or similar intermediary or intermediaries)
during the year in question, as measured by excise taxes collected by the State
on packs bearing the excise tax stamp of the State or "roll-your-own"
tobacco containers. The department of revenue shall promulgate such
regulations as are necessary to ascertain the amount of State excise tax paid
on the cigarettes of such tobacco product manufacturer for each year.
NEW
SECTION. Sec. 3.
REQUIREMENTS. Any tobacco product manufacturer selling cigarettes to consumers
within the State (whether directly or through a distributor, retailer or
similar intermediary or intermediaries) after the date of enactment of this Act
shall do one of the following:
(a)
become a participating manufacturer (as that term is defined in section II(jj)
of the Master Settlement Agreement) and generally perform its financial
obligations under the Master Settlement Agreement; or
(b)(1)
place into a qualified escrow fund by April 15 of the year following the year
in question the following amounts (as such amounts are adjusted for inflation) ‑-
1999:
$.0094241 per unit sold after the date of enactment of this Act;
2000:
$.0104712 per unit sold;
for
each of 2001 and 2002: $.0136125 per unit sold;
for
each of 2003 through 2006: $.0167539 per unit sold;
for
each of 2007 and each year thereafter: $.0188482 per unit sold.
(2)
A tobacco product manufacturer that places funds into escrow pursuant to
paragraph (1) shall receive the interest or other appreciation on such funds as
earned. Such funds themselves shall be released from escrow only under the
following circumstances ‑-
(A)
to pay a judgment or settlement on any released claim brought against such
tobacco product manufacturer by the State or any releasing party located or
residing in the State. Funds shall be released from escrow under this
subparagraph (i) in the order in which they were placed into escrow and (ii)
only to the extent and at the time necessary to make payments required under
such judgment or settlement;
(B)
to the extent that a tobacco product manufacturer establishes that the amount
it was required to place into escrow in a particular year was greater than the
State's allocable share of the total payments that such manufacturer would have
been required to make in that year under the Master Settlement Agreement (as
determined pursuant to section IX(i)(2) of the Master Settlement Agreement, and
before any of the adjustments or offsets described in section IX(i)(3) of that
Agreement other than the Inflation Adjustment) had it been a participating
manufacturer, the excess shall be released from escrow and revert back to such
tobacco product manufacturer; or
(C)
to the extent not released from escrow under subparagraphs (A) or (B), funds
shall be released from escrow and revert back to such tobacco product
manufacturer twenty-five years after the date on which they were placed into
escrow.
(3)
Each tobacco product manufacturer that elects to place funds into escrow
pursuant to this subsection shall annually certify to the Attorney General that
it is in compliance with this subsection. The Attorney General may bring a
civil action on behalf of the State against any tobacco product manufacturer
that fails to place into escrow the funds required under this section. Any
tobacco product manufacturer that fails in any year to place into escrow the
funds required under this section shall ‑-
(A)
be required within 15 days to place such funds into escrow as shall bring it
into compliance with this section. The court, upon a finding of a violation of
this subsection, may impose a civil penalty to be paid to the general fund of
the state in an amount not to exceed 5 percent of the amount improperly
withheld from escrow per day of the violation and in a total amount not to
exceed 100 percent of the original amount improperly withheld from escrow;
(B)
in the case of a knowing violation, be required within 15 days to place such
funds into escrow as shall bring it into compliance with this section. The
court, upon a finding of a knowing violation of this subsection, may impose a
civil penalty to be paid to the general fund of the state in an amount not to
exceed 15 percent of the amount improperly withheld from escrow per day of the
violation and in a total amount not to exceed 300 percent of the original
amount improperly withheld from escrow; and
(C)
in the case of a second knowing violation, be prohibited from selling
cigarettes to consumers within the State (whether directly or through a
distributor, retailer or similar intermediary) for a period not to exceed 2
years.
Each
failure to make an annual deposit required under this section shall constitute
a separate violation. The violator shall also pay the State's costs and
attorney's fees incurred during a successful prosecution under this paragraph
(3).
NEW
SECTION. Sec. 4.
Sections 1 through 3 of this act constitute a new chapter in Title 70 RCW.
NEW
SECTION. Sec. 5.
Captions used in this act are not part of the law.
NEW
SECTION. Sec. 6. This
act is necessary for the immediate preservation of the public peace, health, or
safety, or support of the state government and its existing public
institutions, and takes effect immediately.
